Surging supply and softening demand are bringing the pandemic’s superstar industry back to Earth
. The pandemic’s superstar industry suddenly appears a lot less stellar.
Start with supply. One way that firms have been adding capacity is by installing new kit in existing fabs . In the second half of 2021 global spending on equipment to etch chips onto silicon wafers jumped by about 75% compared with pre-covid levels, estimates Malcolm Penn of Future Horizons, another research firm. It takes a year or so for such investments to translate into new output, so late 2022 could see a production glut.
There was always the risk that demand might have faded by then. But the hunger for chips has waned faster than expected. The clearest signs are in the market for personal computers , which account for about 30% of overall demand for chips of all varieties. After a pandemic boost as working and schooling from home became the norm, global. That is partly because some of those pandemic purchases had simply been pulled forward. Sales of smartphones, another 20% of demand, are expected to ebb, too.
The downward pressure on prices may be compounded by another powerful force. Political considerations, both domestic and international, increasingly influence chip supply and demand. On the supply side, last year’s crunch spooked governments and reminded those in the West that 75% of all semiconductors come from Asia. Many now want to bring the manufacture, especially of leading-edge chips deemed of strategic importance, within their borders.